LONDON: Gold rose on Wednesday as the euro continued its break higher versus the dollar, after a tender for cheap loans from the European Central Bank saw a greater take-up among banks than expected, easing fears of a credit crunch.
Spot gold hit a high of $1,641.50 and was up 0.6 percent at $1,623.19 an ounce at 1229 GMT, further recovering from last week’s drop to a near three-month low. It is up nearly 15 percent this year.
European shares and other commodities such as oil also rose, taking pressure further off gold, which was caught up in selling of other financial assets earlier this year as investors liquidated bullion holdings to cover losses elsewhere.
"The key thing here is the very strong euro rebound," said VTB Capital analyst Andrey Kryuchenkov. "Peripheral bond yields are down across the euro zone. Commercial banks can use the lending facility from the ECB, with rates that are very low, to buy bonds, which are higher yielding."
"Because gold is so closely correlated with equity markets, with the dollar, you’ve had this rebound."
Bullion, like other dollar-priced assets, tends to benefit from weakness in the US currency, as it becomes cheaper for holders of other currencies.
Banks took a huge 489 billion euros at the ECB’s first ever offering of three-year funding on Wednesday, providing hope a credit crunch can be avoided.
"You have to regard it as a positive result," said Societe Generale analyst James Nixon. "This is at least a solid 240 billion euros (net) increase for banks."
The euro climbed in response and stock markets rose. Further signs that Europe’s funding crisis is easing would be positive for the euro.
Gold’s rise took it back through its 200-day moving average near $1,621 an ounce, a key technical level it fell through last week. "The next resistance sits at $1,642, the high from Dec. 14," said ScotiaMocatta in a note.
While regaining that level is positive, gold will likely struggle to make significant gains ahead of year end, as traders wind down for the Christmas and New Year holidays.
Physical demand for the metal was sluggish in the world’s number one gold consumer, India, dealers in Mumbai said, as rising prices put off buyers.
US gold futures for February delivery were up $8.30 an ounce at $1,625.90.
Among other precious metals, silver was up 0.6 percent at $29.70 an ounce. The gold:silver ratio, or the number of silver ounces needed to buy an ounce of gold, held near 55, having this week hit its highest level since November 2010.
"In April, this coefficient dropped at times below 32 and thus to a 31-year low," said Commerzbank in a note.
"Despite the severe slump in its price, gold has therefore fared well in comparison to silver over recent weeks and months. One of the reasons for silver’s relative weakness is reduced demand from China."
Trade data released on Wednesday showed China’s silver imports are down nearly 30 percent in the year to November.
"According to data from the Chinese customs authorities, China imported ‘only’ 232 tons of silver in November, the lowest import volume since January 2009," Commerzbank said.
"At the same time, exports have climbed to a 12-month high of 170 tons, thus increasingly removing an important crutch from the price of silver."
Silver has tended to underperform gold since its sharp price slide in early May spooked investors.
Spot platinum was up 0.5 percent at $1,434.74 an ounce, while spot palladium was up 1.2 percent at $630.06 an ounce.